New study highlights critical role of corporate governance in Africa

Corporate governance improvements are linked to value creation in Africa, according to 2018 Africa Sustainability Study.

Leon Swart

The African Private Equity and Venture Capital Association (AVCA), a pan-African industry association, has released the third edition of its Africa Sustainability Study, ‘The 2018 Africa Sustainability Study: Creating Value through Corporate Governance’. In the survey, 85% of PE-backed portfolio companies and fund managers report that improvements made by the implementation of corporate governance initiatives have led to value creation within the portfolio company. This is critical in the context of the African PE ecosystem, where financial returns and developmental impact signify successful investment.

Adopting frameworks
The study explores how investors in Africa have promoted the adoption of corporate governance frameworks within their portfolio companies to drive value creation. Corporate governance has been a vital component of Environmental, Social and Governance (ESG) standards in Africa, regularly implemented to drive job creation and job quality improvements. Alongside greater commitments to better environmental, social and governance standards in African business life generally, and the increased role of development finance institutions (DFI) in encouraging such policies, the study sets a marker down for companies to follow and for their lawyers to assist them.

Critical issue
Commenting on the study, Enitan Obasanjo-Adeleye, director and head of research at AVCA, noted ‘This is yet another important piece of research to add to the growing story around sustainable and responsible investing in Africa.’ Albert Alsina, chair of the AVCA corporate governance sub-committee added “as an industry, we recognise how critical corporate governance frameworks are to investing in Africa. AVCA has the ability to reinforce these views by sharing fund manager insights and channelling knowledge exchange into action. The survey within the study presents empirical evidence from 277 private equity-backed companies operating across the continent, using data from 2012-2017, and explores the components of value-accretive corporate governance systems. You can download the report here.

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